Tracking Progress

Much like weight loss one of the keys to reaching your financial freedoms is knowing where you actually are and a realistic schedule of where you want to end up. All along the way it really helps to break things down into smaller goals. Below we'll step through things to keep in mind for tracking goals and the ideology behind the Basic Budget Excel tool. You can find the tool download link on the Blog tab under archives. Remember to be as honest as possible and to record activities in the month they occurred to allow the tool to be as accurate as possible.

Getting started with the Basic Budget

﻿The first thing you want to do is calculate your post tax income. This is the amount of pay you receive from your check. Fill that number into Basic Budget where it says "I make ___ dollars after tax per month. If you have deductions that go straight into a retirement account, add that to your monthly income even if it never makes it to your bank account. After tax money is all we will ever consider on this site. It is honestly all that matters and it allows people in different career fields and states to compare numbers. If you are self employed this may be a little trickier but I have faith in you. If you have more than one income source simply add them together. If your pay changes mid-year you can simply "hard-code" it in by typing it in the cell on the left labeled "Post Tax Month Income".

Calculating your net worth

Your net worth should be your holy grail of financial numbers. A lot of people think that salary is the big number but salary is only as useful as you make it. Net worth won't hide the truth no matter how much money you make. To calculate your net worth simply take all the value of your bank accounts, investments, cash, and home equity and add them up. Then subtract from that all your debts and loans. It is best to not use the value of car equity or possessions in net worth calculations because they are continually becoming worth less and less the longer you own them.....unless you got an original Shelby roadster which would probably be a safe inclusion. This number will become a crucial part of determining when you politely quote to your boss the words from the great Johnny Paycheck.

Calculating a savings rate

There are a lot of variables at play with this one. The main thing I would encourage is for you to be more aggressive than you think you can do. Obviously if it can't be done there is no real fallout but it will push you towards a goal you couldn't imagine before. I would suggest nothing lower than 20% but really strive to be up around 50%. This article from Mr. Money Mustache (Shockingly Simple Math) shows how powerful that 30% really is. Instead of you being required to work 37 years in the workforce to retire, at 50% you would only need to work 17! If you have a certain dollar amount in mind instead of a percentage you can take that dollar amount and divide by the post tax income you calculated (savings goal/income) and enter that in for the percent you wish to save. After using Basic Budget for a few months you should start to see what you can realistically save. Never stop trying to up that percentage while still using some of that money for some great experiences.

Budget...Savings Rate...Net Worth...Next?

So now you probably want to know where the magic button is you hit that tells you what day to make your cruise plans. Unfortunately it's simply not that simple but luckily not all too complicated either. In this blog I will mostly use the "4%" rule which means that your nest egg will grow 7% because it is invested and you will lose 3% of that to inflation. This means that you can then spend 4% of your nest egg every year without actually taking anything away from it. So if you had saved $1 million dollars, you can spend $40k a year and always have a million dollars. Now that you know how much money you can spend you just compare that to your yearly expenses. Once those two numbers equal each other it is time to retire. The tricky part is determining how much income will be enough for you. I hope that you can figure that out by using the Basic Budget to see historically what you would need and a little soul searching to determine how you want to live differently in retirement.